Most economists expect the Monetary Policy Committee (MPC) to go for a token 25 basis point (bps) cut in the repo rate later in the day (Wednesday) unveiling the fifth bi-monthly policy announcement. One bps is one hundredth of a percentage point. If a quarter percentage point cut happens, the rate at which the Reserve Bank of India (RBI) lends overnight funds to banks will come down to 6 percent. But, some economists even bet for a steeper 50 bps cut considering the slowdown fears in the economy in the aftermath of government’s demonetisation exercise.
Since January 2015, the RBI has slashed the repo rate six times by a cumulative 175 basis points, of which five came from former RBI governor Raghuram Rajan. Thus, for the current central bank governor Urjit Patel, this will be the second rate cut announcement since he took over charge from Rajan on 4 September.
In its bid to push growth further, the government has been pushing RBI to cut rates all along, but this time there is even more compelling reason to lower rates since the demonetisation exercise being implemented by the government would likely inflict more pain on the economy in the approaching quarters.
